This is in response to your letter concerning the proper computation of overtime under the Fair Labor Standards Act (FLSA) when non-exempt employees are promised retention benefits, including a Stay Bonus.

You write that in 2002, the Name* you represent offered a program of retention benefits to encourage employees to remain at a particular facility from June 6, 2002
through September 21, 2004. Employees have three options for the payout of the
Stay Bonus that they earned, including:

full payment of the Stay Bonus on October 10, 2004;

deferred payment of the Stay Bonus until a future date, no later than January 2016, accruing interest at the rate of 4% per annum; or

continuous equal monthly payments of the Stay Bonus beginning October 10, 2004, until the complete benefit is paid.

You are correct in understanding that the Stay Bonus is a nondiscretionary bonus and pursuant to
section 7(e) of the FLSA, in the case of non-exempt employees, must be included
when the employer computes the employees’ regular rate of pay for purposes of
overtime pay. “Bonuses which are announced to employees to induce them to work
more steadily or more rapidly or more efficiently or to remain with the firm
are regarded as part of the regular rate of pay.” 29 C.F.R. § 778.211(c). As
explained in 29 C.F.R. § 778.209 (copy enclosed), the bonus amount must be
“apportioned back over the workweeks of the period during which it may be said
to have been earned” resulting in adjustment of the regular rate and the
payment of additional overtime in accordance with the adjusted regular rate of
pay. See FOH 32c03(b) (copy enclosed). This is true under each payment option
described above, and as you stated, the proper adjustment period in this case
is June 6, 2002 through September 21, 2004.

You are also correct in your belief that the 4% interest on deferred Stay Bonus payments should not be
treated as wages when retroactively adjusting overtime. This payment is more
akin to interest on a loan from the employee to the employer or interest on an
employee’s investment in a savings account operated by the employer. The
interest payments are unrelated to hours worked and are reasonably approximate
to interest rates generally available. Therefore, the interest payments are not
compensation under the FLSA. See section 7(e)(2) of the FLSA and 29 C.F.R. § 778.224
(copies enclosed).

This opinion is based exclusively on the facts and circumstances described in your request and is
given on the basis of your representation, express or implied, that you have
provided a full and fair description of all the facts and circumstances that
would be pertinent to our consideration of the question presented. Existence of
any other factual or historical background not contained in your request might
require a different conclusion than the one expressed herein. You have
represented that this opinion is not sought by a party to a pending private
litigation concerning the issue addressed herein. You have also represented that
this opinion is not sought in connection with an investigation or litigation
between a client or firm and the Wage and Hour Division or the Department of
Labor. This opinion letter is issued as an official ruling of the Wage and Hour
Division for purposes of the Portal-to-Portal Act, 29 U.S.C. 259. See 29 C.F.R.
790.17(d), 790.19; Hultgren v. County of Lancaster, Nebraska,913 F.2d 498, 507 (8th Cir. 1990).